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How FDR’s New Deal Harmed Millions of Poor People

Democratic presidential candidates as well as some
conservative intellectuals, are suggesting that Franklin Delano
Roosevelt’s New Deal is a good model for government policy
today.

Mounting evidence, however, makes clear that poor people were
principal victims of the New Deal. The evidence has been developed
by dozens of economists — including two Nobel Prize winners — at
Brown, Columbia, Princeton, Johns Hopkins, the University of
California (Berkeley) and University of Chicago, among other
universities.

New Deal programs were financed by tripling federal taxes from
$1.6 billion in 1933 to $5.3 billion in 1940. Excise taxes,
personal income taxes, inheritance taxes, corporate income taxes,
holding company taxes and so-called “excess profits” taxes all went
up.

The most important source of New Deal revenue were excise taxes
levied on alcoholic beverages, cigarettes, matches, candy, chewing
gum, margarine, fruit juice, soft drinks, cars, tires (including
tires on wheelchairs), telephone calls, movie tickets, playing
cards, electricity, radios — these and many other everyday things
were subject to New Deal excise taxes, which meant that the New
Deal was substantially financed by the middle class and poor
people. Yes, to hear FDR’s “Fireside Chats,” one had to pay FDR
excise taxes for a radio and electricity! A Treasury Department
report acknowledged that excise taxes “often fell
disproportionately on the less affluent.”

Until 1937, New Deal revenue from excise taxes exceeded the
combined revenue from both personal income taxes and corporate
income taxes. It wasn’t until 1942, in the midst of World War II,
that income taxes exceeded excise taxes for the first time under
FDR. Consumers had less money to spend, and employers had less
money for growth and jobs.

New Deal taxes were major job destroyers during the 1930s,
prolonging unemployment that averaged 17%. Higher business taxes
meant that employers had less money for growth and jobs. Social
Security excise taxes on payrolls made it more expensive for
employers to hire people, which discouraged hiring.

Other New Deal programs destroyed jobs, too. For example, the
National Industrial Recovery Act (1933) cut back production and
forced wages above market levels, making it more expensive for
employers to hire people - blacks alone were estimated to have lost
some 500,000 jobs because of the National Industrial Recovery Act.
The Agricultural Adjustment Act (1933) cut back farm production and
devastated black tenant farmers who needed work. The National Labor
Relations Act (1935) gave unions monopoly bargaining power in
workplaces and led to violent strikes and compulsory unionization
of mass production industries. Unions secured above-market wages,
triggering big layoffs and helping to usher in the depression of
1938.

What about the good supposedly done by New Deal spending
programs? These didn’t increase the number of jobs in the economy,
because the money spent on New Deal projects came from taxpayers
who consequently had less money to spend on food, coats, cars,
books and other things that would have stimulated the economy. This
is a classic case of the seen versus the unseen — we can see the
jobs created by New Deal spending, but we cannot see jobs destroyed
by New Deal taxing.

For defenders of the New Deal, perhaps the most embarrassing
revelation about New Deal spending programs is they channeled money
AWAY from the South, the poorest region in the United States. The
largest share of New Deal spending and loan programs went to
political “swing” states in the West and East - where incomes were
at least 60% higher than in the South. As an incumbent, FDR didn’t
see any point giving much money to the South where voters were
already overwhelmingly on his side.

Poor people suffered from other high-minded New Deal policies
like the Tennessee Valley Authority monopoly. Its dams flooded an
estimated 750,000 acres, an area about the size of Rhode Island,
and TVA agents dispossessed thousands of people. Poor black
sharecroppers, who didn’t own property, got no compensation.

FDR might not have intended to harm millions of poor people, but
that’s what happened. We should evaluate government policies
according to their actual consequences, not their good
intentions.